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US-Mexico transactions

Case Conclusion Date: 01.01.2009

Practice Area: Tax

Outcome: IRS Appeals - zero net tax adjustment

Description: A US Parent Company (Taxpayer) owned a Mexican manufacturing company which performed environmentally sensitive labor. Mexican Sub got parts from US Parent and sold its output to Parent. Taxpayer's industry had a couple of bad years, and both Parent and Sub had losses. IRS audited the transactions with Mexico and proposed a $4.7 million total adjustment for the related party transactions. Through negotiations with the field examiner and IRS economist, I got the adjustment down to $2.3 million. I took the case to IRS Appeals and got it to a zero tax effect (about $350,000 in one year, and was offset by NOLs, which Appeals did not require be recalculated). Fortunately, Taxpayer had good facts and good data to use in a competing economic analysis to that which was proposed by the IRS field economist.

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